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Stock market: When is a bid not a bid?

Take a moment to consider what it might feel like to lose £7m over Christmas. That’s what Sir Peter Vardy did.

On the other hand, he and his family also made £125m, so on balance, sympathy is not required.

The way it happened is that when Pendragon bid for the company, Sir Peter pledged his 16% of the shares unconditionally to the bidder. But then Lookers showed up and trumped Pendragon’s Trevor Finn with a bid 10% higher at £8.75 a share.

Pendragon has the rights to those shares, so it’s the company and not Sir Peter that makes £7m profit. More interestingly though, Pendragon also keeps the votes that go with those shares, so Lookers had to be very canny in its strategy. In the normal way, 90% acceptances have to be received for a bid to be successful. With rival and underbidder Pendragon holding 16%, it was never on.

That is why there has been this curious ‘scheme of arrangement’ proposal from Lookers, which is a bid by any other name.

The important technical difference is that, under a scheme of arrangement, only 75% of acceptances are required for control to pass to Lookers.

The Reg Vardy board members unanimously recommended the Pendragon deal at £8 in the first place and were, therefore, unable to recommend the higher Lookers offer. Instead they have said that they “will not vote against the Lookers scheme.”

What made Vardy vulnerable to a bid in the first place? Its prudence. Sir Peter did not like debt, but he did like freehold property – much of which had not recently been revalued. Financial advisors would have guessed that there was far more in the company than was shown by the balance sheet.

Will Pendragon bid again? Pendragon may be twice the size of its rival but Lookers has RBS providing the cash and GE Capital on the board.

Small maybe, but with very big buddies. It’s not over till it’s over.

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